China’s PMI continued fall last month

INCREASING DOWNWARD PRESSURE:Analysts said the government might implement stimulus measures of up to 2 trillion yuan as inflationary pressure also falls

Bloomberg

A Chinese woman works at a cotton thread factory on Friday in Huaibei, Anhui Province. A continuing slowdown in China has underscored its vulnerability to the European turmoil and sparked fresh calls for government intervention.

Photo: AFP

China’s non-manufacturing industries expanded at a slower pace for a second month, as export orders declined and weakness in real estate countered strength in retailing and leasing, an official survey indicated.

The purchasing managers’ index (PMI) fell to 55.2 last month from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement yesterday in Beijing. A reading above 50 indicates expansion.

The data add to evidence of slower growth in the world’s second-biggest economy as Europe’s debt crisis crimps overseas demand and government curbs on real estate feed through to more industries. A manufacturing report on Friday showed the weakest reading since December last year, helping send Brent crude tumbling below US$100 a barrel for the first time in almost eight months.

“Although the index fell slightly in May, it was still at a relatively high level of 55.2, which is in line with the general trend of steady growth in non-manufacturing industries,” China Federation of Logistics and Purchasing vice chairman Cai Jin (蔡瑾) said in the statement. “Market demand remains steady and reflects the structural changes in our country’s economy.”

Non-manufacturing industries account for about 40 percent of the economy, according to the federation. The PMI, which is seasonally adjusted, is based on a survey of about 1,200 companies covering 27 service industries, including construction, telecommunications and transport.

Chinese Premier Wen Jiabao (溫家寶) and the State Council, or Cabinet, warned last month that the economy faces increasing downward pressure. They pledged to put a greater focus on growth and “actively” boost domestic demand.

The National Development and Reform Commission may be accelerating construction approvals as part of measures to counter a slowdown that Credit Suisse Group AG estimates will push economic growth down to 7 percent or “slightly below” this quarter compared with a year earlier. Expansion moderated to 8.1 percent in the first three months of the year, the fifth straight quarterly slowdown.

Hong Kong-based Credit Suisse economist Dong Tao (陶冬) estimates the government might implement a stimulus in the range of between 1 trillion yuan (US$157 billion) and 2 trillion yuan, while Credit Agricole CIB strategist Dariusz Kowalczyk said 1 trillion yuan might be needed this year and next to spur growth.

A manufacturing PMI compiled by the statistics bureau and federation fell to 50.4 last month from 53.3 in April, a Friday report showed. The reading, barely above the 50 mark that divides expansion from contraction, was the lowest in five months and compares with a 52.0 median estimate in a Bloomberg News survey of 27 economists. A separate gauge from HSBC Holdings PLC and Markit Economics released the same day showed a seventh straight contraction, the longest since the global financial crisis.

Inflation indicators in both the non-manufacturing and manufacturing PMIs declined last month, giving policymakers more room to implement stimulus to combat the slowdown. Consumer prices rose 3.4 percent in April from a year earlier, below the government’s 4 percent target for this year for the third month.

A gauge of input prices in yesterday’s survey fell to 53.6 from 57.9 in April, while a sub-index measuring the prices charged for goods contracted, showing a below-50 reading for the first time this year, according to the statement.